A DISTRIBUTIONAL ANALYSIS OF AN ENVIRONMENTAL TAX SHIFT: A Retail Sales Tax Reform 3

Poverty thresholds for 1994 ranged from $7,107 for an elderly unrelated individual to $30,285 for a family of size 9 or more. The rebate would equal the tax rate times the poverty threshold for a given family size26. In effect, the rebate removes from the tax base an amount equal to the sum of poverty thresholds for each family unit in the United States added up over all family units. Call this amount the aggregate rebate base. Based on extrapolations from the Consumer Expenditure Survey data set for 1994, the aggregate rebate base would equal $1.15 trillion. Assuming that non-profits and imputed financial services are included in the tax base, the revenue neutral tax rate would rise from 16.5 percent to 22.8 percent.

Annual Income Lifetime Income Married, Age 40-50
Decile Increase Decrease ДTax ДAverage Tax Rate Tax

Shift

Increase Decrease ДTax ДAverage Tax Rate Tax

Shift

Increase Decrease ДTax ДAverage Tax Rate Tax

Shift

1 2,600 337 2,263 28.04 2.0% 2,776 1,590 1,186 5.40 1.0% 4,999 1,508 3,491 15.90 2.0%
2 2,626 316 2,310 19.85 4.0% 3,440 2,504 936 3.38 1.6% 4,542 2,726 1,816 5.59 2.0%
3 3,570 1,044 2,526 14.59 4.4% 3,533 3,624 -91 -0.33 -0.2% 5,936 2,822 3,114 7.35 3.5%
4 4,070 1,571 2,499 10.03 4.3% 4,845 4,261 584 1.55 1.0% 6,236 4,491 1,745 3.57 2.0%
5 4,814 3,013 1,801 5.75 2.9% 5,530 4,834 696 1.48 1.2% 9,181 4,858 4,323 8.05 4.9%
6 4,676 4,108 568 1.39 1.2% 5,468 5,398 70 0.13 0.1% 7,766 7,354 412 1.04 0.5%
7 6,913 5,050 1,863 3.96 3.2% 5,826 5,619 207 0.47 0.4% 7,796 8,001 -205 -1.06 -0.2%
8 6,670 6,813 -143 -0.16 -0.2% 6,492 7,550 -1,058 -1.65 -1.8% 10,597 9,460 1,137 2.89 1.3%
9 8,931 9,129 -198 -0.26 -0.3% 8,536 9,033 -497 -0.78 -0.9% 11,342 10,349 993 0.16 1.1%
10 13,090 26,591 -13,501 -5.78 -23.4% 11,652 13,234 -1,582 -1.86 -2.8% 19,303 47,602 -28,299 -9.11 -32.4%
ДSuits ДSuits ДSuits
Suits -0.171 0.202 -0.373 0.005 0.068 -0.063 -0.135 0.255 -0.390

Table 11 presents incidence results for a broad based national sales tax with a universal rebate based on poverty thresholds. Compared to Table 10, the tax is modestly less regressive when evaluated using the annual income approach. However it continues to look very regressive. The Suits Index for the sales tax with rebate is -0.171 indicating considerable regressivity (relative to the income tax system it replaces for which the Suits Index equals 0.202). Tax shifts continue to be quite substantial with the top decile receiving a decrease in aggregate taxes equal to nearly one quarter of tax collections under the national retail sales tax. The regressive nature of the reform falls when I rank people by lifetime income. The change in taxes ranges from a decrease of nearly 2 percent (decile 10) to an increase of 5.4 percent (decile 1). Ranking households by lifetime income the Suits Index for the sales tax with rebate (0.005) is much closer to the value of the index for the current income tax (0.068). The cohort measure, however, suggests that the tax reform is still quite regressive. The Suits Index rises substantially and across decile distributions are also quite large (nearly one third of tax collections accrue to top decile in lower taxes).